Michael Fallon is optimistic about the UK shale industry
Michael Fallon is bullish about the prospects for Britain's shale-gas sector. And, as he tells Conal Urquhart, while there's a lot of work to be done, the rewards will make the effort worthwhile
He has has been credited with the successful and controversial privatisation of the Royal Mail, the British postal service. But now Michael Fallon's job is to help establish Britain's fledgling shale-gas industry in the face of opposition from committed environmental activists and a public which is more aware of the challenges of drilling for shale gas than the benefits.
The member of parliament has a wide-ranging role as a minister in both the Department of Energy and Climate Change and the Department of Business, and is now working with the handful of companies which have licences to drill for shale gas.
Fallon said he expects that, over the next two years, about 20 to 30 exploration wells will be drilled in the UK, adding that it is likely the commercial exploitation of shale gas could begin to offset falling North Sea gas production. "The pace has been picking up since the summer when it became clear that there is two or three times the amount of shale as we originally thought in the north. We don't know how much there is in the south until we publish the geological survey in the spring," he told Petroleum Economist. "There is growing interest. There is a dozen small companies preparing to explore and a tell-tale sign is the emergence of two or three majors behind them; Centrica getting involved in Cuadrilla, GDF Suez with Dart and a couple of other large companies are poised to enter the market."
Some of Britain's early experiments in hydraulic fracturing caused minor earthquakes near Blackpool, Lancashire in 2011 which led to a moratorium while further research was undertaken.
Cuadrilla's plans to drill for oil at Balcombe, West Sussex, was curtailed by protesters and Igas is facing similar opposition as it prepares to drill at Barton Moss, outside Manchester.
Yet the UK's gas production is falling and it now needs to import gas by pipeline from continental Europe and Norway, topping up with liquefied natural gas (LNG) from Qatar. The country's gas imports are expected to rise from 50% of demand now to around 70% by 2030. In 2012, total UK demand was 78.3 billion cubic metres (cm), according to the BP Statistical Review figures. Government data, compiled by energy regulator Ofgem, suggests that total gas demand by 2030 could be as much as 90bn cm.
Shale gas seems to offer a way of reducing gas imports and possibly reducing energy bills. The British Geological Society (BGS) estimates that the Bowland Shale, which extends from the Irish Sea to the North Sea, as far south as Loughborough, in the Midlands, and as far north as Morecambe, on the Lancashire coast, and Scarborough, in North Yorkshire, contains 1,329 trillion cubic feet of gas in place. However, it is not clear what percentage of those reserves can be economically recovered.
The BGS is currently preparing a report in the Weald basin, in the south of England, which stretches underneath the counties of Kent, Sussex, Surrey and Hampshire. The Weald is believed to be a liquids-rich shale which could offer different opportunities from the north.
Most analysts believe it will be difficult for the UK to emulate the US's shale experience, despite the size of its shale, but Fallon has sought advice from Texas. "I have been talking to Governor Rick Perry (of Texas) and he has told me of the explosion of new companies that emerge from the shale industry. The potential of shale is here. We don't yet know if we can get it out as easily or as cheaply as in the US," Fallon said. "We're a much more crowded island but we want to crack on with exploration. Although here, unlike the States, you have to get local planning permission. In the US mineral rights belong to the landowner, so it is easier to accelerate [exploration]," he added.
One major difference between the UK and the US is the level of regulation and Fallon has set up the Office for Unconventional Gas and Oil to help streamline the country's regulatory environment. "It's OUGO's job to co-ordinate the work of Whitehall to ensure the response to this new source of energy is properly joined up. If we see unneccessary red tape, of course we are on it. Developers come forward all the time and ask us to clarify and streamline the various procedures and I think it is everyone's interest that everything is clear."
He said the government bodies were also dealing with public concerns. "There are myths and there are legitimate concerns. Where there are legitimate concerns, we have been addressing them one by one. We have a study of emissions by our chief scientist. Public Health England has published a study showing the threat to public health is low. Water UK will publish a study shortly showing that water supplies can cope with [hydraulic fracturing]," he said.
Fallon added: "All the steps needed to encourage exploration are there, the fiscal incentives, the community benefits, the streamlined planning system, the regulatory steps have been clarified. There is nothing holding anyone back."
The possible problems associated with shale gas are far outweighed by the possible benefits, the minister said. â€œThe impact, not just on household bills, but on industry bills, could be dramatic. The potential of shale as a cheaper feedstock gas is not written about much. "Cheap gas prices in the US have contributed to growth in the competitiveness gap to between 50% and 60% in some of our chemical and steel processes. The gap in energy costs between us and the US is that large. We need to address that or we are going to permanently lose competitive advantage to the US. Already we are seeing frightening amounts of reshoring, of plant and jobs moving across the Atlantic."
Fallon says it is too early to say what the impact will be on the British landscape, whether parts of it will become dotted with thousands of wells like areas of Texas, North Dakota or Pennsylvania."We are not going to see rigs in every field or village. [And] it's too early to speculate on the number of rigs. I'm not sure there will be thousands of wells," he said.
Britain, he pointed out, had a long history of onshore drilling which had been overshadowed by the size of the offshore industry. "We have had thousands of wells drilled onshore in this country, even in areas of outstanding beauty and around 200 of them have been fractured without incident," he said.